Establish an Independent Agency and Monitor

Once a grant and lines of credit are in place and being deployed in the market, it is then imperative that the deployment be monitored. Without this, customers are likely to suffer - such as those in Kenya. It is estimated that about one-third of the solar systems in Kenya are not fully operational because of a lack of enforced installation and design standards, mixed quality of components, and lack of customer awareness.46

Specifically, standards of product quality and service need to be set and enforced. But in terms of what to standardize, policymakers should go for a minimalist approach. This means using some accepted international standards for component testing - of modules, batteries, lights and so on - but avoiding dictating precise system configurations - for example, two or three lights or 20 or 40 watts. A solar system should always be designed by the firm selling it, not a government agency. Some households prefer to pay for only two or three lights; some prefer to pay for more. Some will only need DC output for radio and black and white TV; others will want AC output for refrigeration, colour TV and ceiling fans. A policymaker should use the grants to encourage firms to serve the precise needs of the customer, not to try to standardize one or two packaged solutions.

A policymaker also needs to monitor the quality of installation and, critically, of after-sales service. Sometimes it is felt that you need the business to finance the customer - either through a company finance scheme or through fee-for-service - for the business to have the long-term incentive to provide after-sales service.47 But while it is true that if a company finances a customer, they need to provide service to collect their money, it is also true that a firm that has sold a system to a customer through a bank will be just as on the hook for the quality of the installation and after-sales service as if it financed it itself. If the firm does not provide a decent system, and good quality installation and service, the customer will stop paying the bank, and the bank will stop working closely with the firm to finance further customers.

That said, inevitably there are always those companies which for whatever reason - whether having access to less capital or less long-term vision - will try to cut corners at the customer's expense. So once a grant is deployed, the policymaker must set standards for product quality, installation and after-sales service, and must establish an agency to ensure these standards are met and enforced.

In some cases, government agencies have preferred to do this monitoring themselves. In Benin and Togo, for example, the rural electrification agency was given the responsibility of spot-checking installed systems and conducting regular consumer surveys to ensure customer satisfaction with the service provided.48 But generally, as we have seen, it is better to establish an independent agency to manage the disbursement of the grant and the lines of credit, and that independent agency can also do the required monitoring of quality.

In looking for best practice, we can again look to the World Bank loan to Sri Lanka. Here the independent agency, the AU, set reasonable technical standards and required a test certificate showing that the components used by the firm - the solar module, the battery and the electronics - had passed the specific test standards. Without pre-approval of these essential components by the AU, a firm could not claim a grant for the system installed.

Furthermore, the AU had the responsibility to make sure that solar systems for which businesses claimed a grant were actually installed, and that they were being adequately maintained. If a firm was found to be deficient in terms either of the components used, the installation of the system or the after-sales service, the firm would be warned, and then black-listed in the case of repeat violations.

We can also point to Bangladesh, where the independent agency, IDCOL, set up a Technical Standards Committee whose functions were to establish and update equipment and service standards; design a quality-assurance programme; determine technical standards for equipment to be financed under the programme; review the product credentials submitted by dealers and approve the eligible equipment; and evaluate feedback from dealers and participating organizations to develop the industry standards.

In addition, IDCOL also took on the function of appointing independent organizations to conduct two types of audits. The first is a commercial audit to ensure that the participating organizations were using the grant for the designated purposes. The second, critical to the success of the overall programme, are technical audits, where it is ascertained that the equipment used is approved by the programme.

The beauty of offering the grant to the firm responsible for selling solar is that it gives a policymaker some leverage with which to improve standards. Any firm that does not meet these standards cannot access the grant and will be at a competitive disadvantage in the market. It is a strong incentive to improve performance for the benefit of the customer, as well as the business itself. Many firms may not even know how to improve their components or offers until the administering agency informs them. But once informed and alerted to better components and a better standard of service, an independent administering agency plays a key role in keeping the firms honest.